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Judul : Rule of 72: Understanding the Secret of the WealthyLink : Rule of 72: Understanding the Secret of the Wealthy
The rich gets richer and the poor poorer. Most of the time, the missing link is "information." The wealthy people know something that average people don't and that is financial education. One of the secrets of the wealthy is that they know how to let money work for them.
However, most of us don't know how to let money work, thus we work hard for the money. But the challenging part is that nobody wakes up at 6 or 7 am and says, "yehey! It's time to go to work!" Unless we know how to let money work, we are doomed to work for the rest of our lives. So how does money work?
Money works through the help of interest rates. There are two types of interest rates: Simple and Compounding Interest.
Simple Interest:
Example: 1% interest on the principal per year.
100 (principal savings)
After 1 year: 101
After 2 years: 102
After 100 years: 100 becomes 200! Exciting!
Compound Interest:
Understanding the magic of compound interest:
Example: 1% interest compounded annually
100 (principal savings)
After 1 year: 101
After 2 years: 102.01 (because your 1 peso also earns 1% interest)
After 3 years: 103.03 (the magic of compounding!)
Experts have derived a simple formula to estimate the number of years your money doubles through compounding called the "Rule of 72." The rule states that 72 (constant) is divided by the interest rate per year equates to the number of years your money will double.
72 / i = # years money doubles
Using the values above, 72 / 1% = 72 years.
Therefore: 100 becomes 200 after 72 years (compared with 100 years in simple interest rates)
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Rule of 72: Understanding the Secret of the Wealthy
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